THE GOVERNMENT yesterday chose to dismiss Richard Holbrooke's warning that
the US would abandon Cyprus settlement efforts if there was no progress
soon.

Before leaving the island on Sunday morning, the US envoy stated the US
would "reconsider" its role in helping solve the Cyprus problem if his next
mission here in May failed to achieve any progress.

But Government spokesman Christos Stylianides said the government did not
believe Holbrooke's warning. "We believe US interest will continue till a
just and viable settlement is achieved," he told his daily press briefing.

While declining to comment directly on Holbrooke's statements, Stylianides
said the government believed the Eastern Mediterranean area was
"significant" for US interests.

Holbrooke had left little room for doubt with his statements.

"I want to be very frank, when we come back in a month we will look for
evidence of a real desire to move forward, otherwise there's no point in
continuing this kind of shuttle diplomacy until it becomes empty and
sterile," he said.

On Saturday the envoy described his two days of talks with President
Clerides and Turkish Cypriot leader Rauf Denktash -- aimed at kick-starting
stalled settlement talks -- as "successful and inconclusive."

"We are not doing this for our health, beautiful as Cyprus is... we're not
going to be part of a theatre without meaning," Holbrooke said on Sunday.

He said his May contacts would be "very important, possibly decisive in
allowing the US to determine what it's role is going to be: are we going to
be heavily engaged or are we going to back off? That depends on the
parties."

"The US is not going to spend the rest of the century wandering around
trying to create a settlement," he said. Holbrooke is expected back on the
island around May 1.

"If the two sides don't want an agreement no-one can force them, the US is
not going to dictate terms to the communities in Cyprus, the US isn't going
to force an agreement down Turkey or Greece's throat," he said.

Both sides had to be willing to shift their positions if an "arrangement,
not quite a marriage but an arrangement, a federation," was to be agreed,
Holbrooke said.

"If one side or the other doesn't want to move, there's nothing you can do
to force them, nothing," the envoy said.

"The use of force is out of the question, we don't want a return to what
happened in 1974, which we think was terrible," he said, referring to the
Turkish invasion.

Settlement talks have been deadlocked for months, with Denktash refusing to
return to the negotiating table unless the EU reverses its decision to
begin accession talks with the government. The EU talks kicked off in
Brussels last week.

Holbrooke criticised the EU's decision to open entry talks with Cyprus
while closing the door on Turkey, saying it did not help settlement
efforts.

"The EU made two decisions in Luxembourg on December 13. One was to invite
Cyprus to begin talks to join the EU -- we think that was a good decision;
the other was not to start a process with Turkey -- we think that was a
mistake. I don't see how Cyprus can move forward without Turkey's support,"
he said.

The response to Holbrooke's statements from party leaders was less measured
than the government's.

Diko leader and House president Spyros Kyprianou described the statements
as a "provocation for all of Hellenism".

"It was an ultimatum, supposedly to both sides, but in my opinion it is
directed mainly to our side," Kyprianou said.

"For 24 years the US has been working to close the Cyprus issue in a way
that would not displease Turkey, to put it mildly," he said.

Kyprianou attacked Holbrooke's statements concerning the EU. "It is clear
from the statements that the first priority for the US is to satisfy Turkey
concerning relations with Europe," he said.

Vassos Lyssarides, leader of socialist Edek, described Holbrooke's
statements as "non-serious" and "disappointing".

"All this talk about terminating the initiative cannot be taken seriously.
There are US interests here that dictate US involvement on the issue," he
said.

He said Holbrooke's mission could be taken over by another US envoy if
Holbrooke was unwilling to continue.

"If it is not Mr Holbrooke it will be someone else, but the US interest
cannot be terminated because it is in their interests," Lyssarides said.

He too criticised Holbrooke's EU statements. "It was a lapse of Mr
Holbrooke's to try to tell the EU what to do," he said.

US Ambassador Kenneth Brill was cautious when asked to comment on his
compatriot's statements yesterday.

"Richard Holbrooke is a very articulate spokesman for himself and there is
no benefit for outsiders to try to be helpful," Brill said.

ORGANISERS yesterday cancelled an Easter pilgrimage to the occupied
Apostolos Andreas monastery after the Turkish side refused to back down
over the entry fees it planned to charge pilgrims.

More than 1,000 Greek Cypriots were scheduled to make the trip on Easter
Sunday, April 19, but the Denktash regime insisted the pilgrims each pay a
levy of £15 sterling to cross, something the Humanitarian Affairs Office
deemed "unacceptable".

The Ledra Palace crossing fees were introduced by the Turkish Cypriot side
in January in retaliation for a British decision to impose a visa
requirement on Turkish Cypriots.

The cancellation will not, however, affect a parallel pilgrimage by Turkish
Cypriots to the free areas this week, though they will face a £4 Sterling
`exit fee' on leaving the occupied areas.

More than 1,000 Turkish Cypriots are expected to travel to the Tekke mosque
in Larnaca for the Muslim festival of Eid al-Adha on Thursday.

Humanitarian Affairs Commissioner Takis Christopoulos told the Cyprus Mail
yesterday that the new charge was unacceptable, but added that if the
Turks backed down on the matter, another visit would be arranged.

But this looks unlikely, as United Nations spokesman Waldemar Rokoszewski
said yesterday the UN had already tried and failed to convince the Turkish
side to give up the charge scheme.

He described the situation as "regrettable".

On Saturday, visiting US envoy Richard Holbrooke said the issue of the
crossing charges "troubles me a lot... I think the movement should be free
across the line. This is just wrong."

THE WRITING is not on the wall for Spyros Kyprianou as leader of the Diko
party, Kyprianou himself said yesterday.

Kyprianou was commenting on rumours, rife ever since the centre-right party
backed the loser in February's presidential elections, that the party base
were after a change in leadership.

"I have noticed no such thing, in fact I have noticed the exact opposite,"
he said yesterday, summarising what he saw as the feeling to come out of a
party conference over the weekend.

But party member Loris Tryfonos, speaking earlier in the day, said the
opposite.

"Many party members have made their position clear. And these stated
positions make it clear that everyone is worried and wants renewal and
change," Tryfonos said in an interview with Cyprus Broadcasting Corporation
(CyBC) radio.

Kyprianou dismissed those seeking change as a fringe element. "Some, a
small minority, may wish this (new leadership), and some of this small
number show it and some don't," he said.

"I never had the desire to remain leader of the party permanently, till I
reach the age of 80, this won't happen," the 66-year-old politician said.

"But if my presence is needed I have a duty as founder of the party and as
someone who spawned Diko and believes in its mission to stay as leader," he
said.

Kyprianou has been Diko chief since the party was founded in 1976.

Tryfonos referred to the weekend conference as a waste of time, saying the
party faithful were keen to have leadership elections now.

"The overwhelming majority of our members wanted and want an electoral
conference," he said.

"Our members are worried about the party, they want renewal. They want to
hear (positions) and then be allowed to vote for a leadership accordingly.
They do not want conferences and time-wasting," he said.

Diko has been tearing itself apart ever since the run-up to the
presidential elections.

High-profile Diko members unhappy with the official party decision to back
the candidacy of former Foreign Minister George Iacovou broke ranks. Most
of them then backed the candidacy of Diko deputy Alexis Galanos.

Galanos and his supporters were turfed out of the party in the aftermath of
Iacovou's defeat in the elections. Galanos subsequently proclaimed he was
to establish his own party.

Kyprianou yesterday dismissed suggestions the Galanos supporters were
"behind" moves to have him ousted as party leader.

THE GOVERNMENT yesterday rejected an Akel proposal for additional tax
discounts, saying they ran against the philosophy of the tax system,
deprived the state of funds and would lead to more demands.

Akel's bill would introduce a £1,200 tax discount for parents of children
with special needs. It would also lower the age threshold for tax discounts
on pensions from 65 to 63.

The Inland Revenue Department estimates that the first measure would mean a
loss of state revenue of some £300,000. The state coffers face a shortfall
of £1.5 million if the pension amendment was approved.

It is also concerned about the technical difficulties -- having to change
the way of calculating tax and print new tax forms only two years after a
massive overhaul of the tax system was approved by the House of
Representatives.

For the government and several deputies on the House Finance Committee, the
issue was not so much the amount of money involved but the whole philosophy
of keeping the tax system apart from the state's social policy.

The Ministry's Andreas Christou was explicit. He said the tax reform had
modernised and simplified the system by removing discounts and tax credits.
Social groups received benefits as a matter of government policy, not
through the income tax law.

In view of the fiscal situation, neither of the two proposals was justified,
he said. And the 1996 tax overhaul had in any case led to benefits of £40
million to middle and lower income families, he added.

The government was also concerned that approval of the two measures would
open the floodgates to pressure from other organised groups, whose tax
discount had been scrapped as part of the overhaul. Lowering the age
threshold for pensioners would only prompt demands from public servants and
bank employees for a further reduction to 60 years.

But Akel's Avraam Antoniou, who tabled the bill, disagreed, saying many
countries exercised social policy through the tax system. The issue remains
before the committee.

A 40-YEAR-OLD British man narrowly escaped death on Sunday when his
apartment went up in flames while he slept.

Mike Strong, a technician for the Akrotiri Bases, was asleep in his flat in
Yermasoyia when he was suddenly engulfed in flames.

Neighbours called the police and Strong was taken to hospital where he was
kept in with breathing problems. Police said they had no idea what had
caused the fire. Damage was estimated at £5,000.

Police were also yesterday searching for suspected arsonists who struck in
Larnaca on Sunday night.

At around 4.30 am, residents of a block of flats on Ammohostos Street
noticed a fire in a second floor flat belonging to Michaelis 'Tito'
Christodoulou, 43. Fire-fighters managed to bring the blaze under control,
but not before the hallway and one of the bedrooms had been gutted with
extensive damage to property.

The fire appears to have been set at three points on the floor in order to
spread rapidly across the fitted carpets.

Christodoulou, a nightclub flower-seller, was not at home at the time of
the attack; his car tyres had also recently been slashed.

Another case of suspected arson was reported yesterday in the Limassol area,
after a fire at the 12th Limassol Primary School. The fire broke out at
around midday in the staff room, damaging curtains and sports equipment to
the cost of approximately £550.

FOUR MEN suspected of involvement in drug running in the Famagusta area are
to face trial before the Assizes court on April 30.

Dimitris Polycarpou, alias Sakkos, 26, from Trachoni, Avraam Constantinou,
29, from Sotira, Charalambos Martis, 22, from Frenaros and Antonis Loizou,
alias Sirinas, 21, from Limassol, were brought up before the Famagusta
District Court in Larnaca yesterday.

The four were arrested on March 19 after a brawl in the Kokkinochoria area,
Famagusta. The court heard that Sakkos and Sirinas had attacked
Constantinou and Martis because they had failed to come up with payment for
drugs.

Constantinou and Martis received ten-and-a-half kilos of hashish from the
other two suspects in the days preceding the incident, the court heard.

Constantinou and Martis had agreed to pay £5,000 for the drugs but never
did, the court heard. So Sakkos and Sirinas went looking for Constantinou
and Martis armed with a Zastava automatic, knives and clubs, the court
heard.

Police intervened to stop the ensuing brawl and arrested all four men
involved.

All four suspects were yesterday charged with conspiring to commit a crime
by trading in illegal substances. Constantinou and Sirinas were also
charged with conspiring to buy drugs from the other two suspects, while
Constantinou was also charged with illegal possession of a Zastava
automatic.

The case was referred to the Assizes court for April 30. The suspects were
remanded in custody till then.

DISRUPTION looms for the construction industry as workers and employers are
set on a collision course over wage increases.

With collective agreements coming up for renewal, bosses say the industry
is in recession and they cannot afford the £1.25 increase in basic wages
that construction site workers want for next year. Workers' unions say
builders are not highly-paid and have already foregone wage increases for
the sake of the health of the industry.

"The £1.25 unions want is the drop that will make the cup overflow," the
chairman of the Building Contractors' Association, Dimitris Sampson, said
yesterday.

"We have asked the union side to give us a year's breathing space, we did
not ask for a long-term freeze on wage increases," he said.

"Our employees already get CoLA and they got an increase at the start of
the year. What we are asking is that next year we give our industry a
chance to breath so that we do not drive it to the same stage other
industries have got to and are already destroyed," Sampson said.

For the union side, Peo representative Michalis Papanicolaou said the £1.25
basic wage increase was not what was going to make or break the industry.

"We say the industry cannot be saved by workers not getting the £1.25 basic
increase," he said.

"In the last four years builders, because of the recession, have foregone
most of the agreed increases, the employers acknowledge this. So what we
are basically asking for this year is that we cover a part of the increases
we never received," Papanicolaou said, adding that builders were not highly-
paid.

"Let us solve the financial part of collective agreements and than see how
we can work together to solve the problems in the industry," he concluded.

Its president Dinos Papadopoulos told the House Finance Committee the stock
market -- which opened officially in 1996 -- needed "depth and width".

"The bill will give incentives and help important companies overcome their
fears or unwillingness to come on to the market while the cost to public
finances will be minimal."

Also before the House Finance Committee yesterday was a bill by United
Democrats president George Vassiliou with a package of proposals, many of
them technical, to simplify the income tax law, particularly as regards
companies.

Government officials said many of the proposals had been discussed with
auditors -- with consensus reached on some of them. They promised to come
back with the government's positions on the bill within a month.